The Economically Out-of-Date Nation-State

Michael Porter, the godfather of business strategy, has gotten a lot of attention lately for trying to apply his model of competitive dynamics to the current plight of the United States — high unemployment, crushing healthcare costs, crumbling infrastructure, and widespread indebtedness. His thesis is that big business should take the lead in producing “shared value” in the United States, ostensibly competing by making investments on American soil that will lead to a virtuous circle of prosperity generation.

This call to defend the nation-state is quite in vogue these days. Porter has of course been beating the drum on national competitiveness for decades. But lately even apostles of globalization like Thomas Friedman and Martin Wolf have entered into eleventh-hour reconsiderations of the fate of nations after global economic forces have proved to be beyond the current establishment’s control. Friedman has gone from trumpeting that The World is Flat and we’d better get used to it, to worrying that That Used to Be Us — the recent book on American competitiveness he co-authored with political scientist Michael Mandelbaum. Financial Times journalist Wolf once extolled the successes of globalized markets and painted dissenters who worried about the risk to national fortunes as wild-eyed radicals. Since the financial crisis, he has emphasized that individual nation-states need something approximating a healthy fiscal situation if the world system is to avoid periodic collapse.

It is too little, too late. The world’s major economies have been engaged in a strategy of irreversible interconnection for so long that there’s no turning back. The future of prosperity will be in investing in new economic and democratic networks, not in hoping that business can somehow reform itself to defend the now moribund nation-state.

The past few decades have seen the birth of an era in which large, stateless corporations succeed irrespective of the long-term impact of one nation-state or another. These global corporations are thus exceedingly unlikely to embrace a nationalist strategy of shared value, or to volunteer to help shape up national ledgers. As has been pointed out countless times, many corporations have capital structures that aren’t tied to any one nation. The British-Swedish pharmaceutical giant Astra-Zeneca is a huge employer in the state of Delaware — but can we reasonably expect it to engage in a “shared value” strategy in the Mid-Atlantic? Apple’s manufacturing strategy and General Motors’ growth market and Wal-Mart’s supply chain are all based in China — do we really expect them to radically remake their strategies in favor of California’s fiscal crisis, Detroit’s economic depression, or Arkansas’ rural poverty?

Our thought leaders have failed to address the fact that due to the fiduciary responsibility of corporate officers, they will always side with shareholders rather than permit a loss to be taken because of capital investments in a given nation. What CEO would last five minutes if he announced that the company will be taking a loss to help out the unemployed of Buffalo, New York by creating 1000 new jobs? What CFO could survive informing the board that he neglected to use international tax havens because, gosh, somebody has to help out America’s deficit? What would be the business case behind “shared value” in service to America, when the daily grind will be spent in service to meeting earnings forecasts on the Street?

Our political system will not remediate the contradictions of the global corporation through policy. We spent decades with a national strategy of developing stateless firms that we now, suddenly, expect to support the state. Decades of neglect at the policy level, not to mention the political capture of legislation through corporate lobbying, leave nations unable to address the problems of global economic structures — even if they wanted to.

What is the alternative to a national economic strategy? A wide variety of new networks that may well drive the future of prosperity. In the wake of global instability, we see new economic and political networks popping up as people excluded from the global financial system look for alternatives. The fiscal failures of the nation-state are strengthening independence movements in places like Scotland, Catalunya, and Quebec. New forms of money, such as regional currencies and stateless digital currencies like Bitcoin, are emerging to tie likeminded people together economically while global bankers worry about the chaotic debt structures they designed. Transition Towns are inspiring locals to make their communities robust in the face of potential shocks to food, energy, or money supplies.

One strength of these regional networks is that they are based on relationships and interdependence rather than top-down policies. Moreover, in the digital era, very little will impede these smaller entities from finding trading partners all over the world. Essentially, corporations have already seceded from the nation-state system to derive economic benefits. Now, individuals and communities may follow suit.

If these examples seem marginal, that’s because they are on the margins — for now. But as entire nations find themselves unable to compete in the global system, the margins will widen from towns and rural communities to Greece, Portugal — maybe even Spain and Italy. When things cease to function from the top down, people are forced by necessity to remake a system that will function on their own terms.

If this breakaway is the future, it poses a host of incredibly complex questions. How shall taxation work as nation-states enter this phase of transformation? What about all these bonds floating around with the words “United States,” “España,” and “Italia” printed on them? Will some countries, like China and Germany, maintain a national strategy while others break down into smaller nations? Who pays for healthcare? Or infrastructure? What about “national security?” Who will govern a world this complex? I suspect that each region will have its own solution, and that the next century will be dedicated to exploring the answers to these questions.

I doubt, however, that we shall avoid these tough questions by turning back to national strategies reminiscent of the 20th century. The moment for this should have been 1991, when the Soviet empire gave way and we had an unprecedented opportunity to shape the global system. We bet on globalization, for good and for ill. Our way, scary as it seems, is forward, not back.

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